Sappi fights back against tough market conditions with production

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paperlooop.com
BRUSSELS, July 31, 2001 (paperloop.com) - Sappi has taken massive downtime measures over the past three months to battle adverse trading conditions in the coated fine paper market. "Coated fine paper is probably the worst market you can be at in 2001," the company's executive chairman, Eugene van As, said. "We have taken severe production curtailments in this quarter. The market has been extremely difficult and the paper industry generally, I think, has taken a lot of curtailments," he added.
Sappi took 150,000 tonnes of coated fine paper out of the European market during the third quarter, which equals one week a month, in a bid to match output to market requirements. The group's worldwide total downtime tonnage for the period reached almost 250,000 tonnes of coated fine paper.
Sappi will continue to cut capacity in the fourth quarter but the total tonnage might not be as high as in the third quarter. There has been a clear reduction in paper consumption and advertising levels have dropped, but the company expects an upturn in consumption and demand, which would in turn mean less downtime, van As explained.
The market has been hit by declining advertising revenues and huge new capacity that has come on line both in Europe and Asia. He singled out Asian Pulp & Paper (APP) as one culprit for disruptions in the Asian coated fine paper market. APP has built over a million tonnes of new capacity in the last two years, and "they are running these facilities for cash," van As criticized. As a result, producers have tried selling more in the US, adding pressure to that market.
On the hot topic of price increases in the European coated fine paper market, van As said that Sappi has increased indent prices but stock prices have remained unchanged. "Indent prices have slipped slightly, we brought them back to where they were before. So there hasn't been a general price increase for coated woodfree paper in Europe," he clarified. Sappi does not foresee a general price increase in the future either, according to van As.
Sappi expects its fourth quarter results to be similar to the third quarter figures. Inventory levels are low and general economic recovery should bring relief to the industry. "When the economic upturn happens and the inventory pipeline is empty, there will be a fairly rapid rebound in earnings for paper companies," van As said.